Mortgage Affordability Calculator

Determining how much you can afford to pay when purchasing a home, as well as your monthly mortgage costs, is likely your biggest consideration when on the real estate hunt. But figuring out just how much you can afford isn’t as straightforward as working monthly payments into your budget. Your affordability will be based on several factors including the total income of all mortgage applicants, existing monthly expenses and debt obligations (such as car payments, daycare, credit card payments, etc.), as well as the monthly expenses associated with homeownership (for example utilities, property taxes, condo fees).

Two of the most important metrics taken into consideration by your mortgage lender at qualification will be your debt service ratios. The first is your gross debt service ratio (GDS), which takes into account your mortgage principal and interest, along with your taxes and heating expenses, divided by your annual income. As a rule of thumb for mortgage qualification, your GDS ratio should be in a range of between 32 - 39%. The second metric is your total debt service ratio (TDS), which includes broader expenses such as your housing costs, credit card interest, car payments and loan expenses, divided by your annual income. Your TDS ratio should be in a range of 40 - 44%.

These metrics, combined with other elements such as your credit score, will help your lender determine how much mortgage you can afford.

Also read: How your credit score affects your mortgage

In Canada, as per the Federal Department of Finance, as of December 15, 2024, home buyers must make a minimum down payment of 5% on the first $500,000 of their home’s purchase price, and then 10% on the remaining portion between $500,001 and $1.5 million. Home buyers must make a 20% down payment on properties priced at $1.5 million or more.

Read more: New insured mortgage maximum extended to $1.5 million

A home buyer who is making a less than 20% down payment on their home purchase – also referred to as a “high-ratio borrower" – is required by law to take out mortgage default insurance. This coverage is often also referred to as CMHC insurance, as the Crown Corporation has historically been the predominant provider of this coverage. The other two providers of mortgage insurance in Canada are Canada Guaranty and Sagen.

Mortgage default insurance costs home buyers between 2.8% to 4% of their total mortgage amount, and premiums are rolled up into the borrower’s monthly mortgage payments. They are paid right from the start of the mortgage. 

The purpose of mortgage default insurance is to protect lenders in the event a borrower cannot continue to make their regular mortgage payments, effectively defaulting on their mortgage loan. High-ratio borrowers are considered to pose an extra level of risk in this regard, because they have less equity in their home due to their smaller down payment. As mortgage default insurance is backstopped by the Government of Canada, this further protects lenders while giving higher-risk borrowers better access to mortgages, and lower interest rates than they would otherwise qualify for due to their risk profile.

Also read: Insured vs. uninsured mortgages

The amount you’ll pay in CMHC insurance (also referred to as mortgage default insurance), is calculated as a percentage of your mortgage loan, and is based on the size of the down payment you’re making; generally speaking, the smaller your down payment, the higher your CMHC insurance premiums will be.

See the chart below for more details on how premiums differ based on down payment amounts, based on 25-year and 30-year amortizations:

Source: CMHC

Let’s use the Affordability Payment Calculator above to determine a buyers’ maximum affordability in this scenario.

Assuming the home buyer has an annual income of $100,000, makes a $50,000 down payment (10% of the total purchase price), they would qualify for a home priced at $504,117. As the down payment is less than 20%, this scenario includes $18,165 of CMHC insurance premiums added to the mortgage. Subtracting the initial $50,000 down payment amount, that equals a total mortgage amount of $472,282.

In Canada, the maximum mortgage amortization for a high-ratio mortgage (less than 20% down paid) is 30 years for first-time home buyers, but is capped at 25 years for any other buyer taking putting less than 20% down. Low-ratio borrowers, however, can always access an amortization of up to 30 years from an A lender, or up to 35 years with a B or alternative lender.

If you select the First-Time Home Buyer option, the calculator applies the appropriate federal and provincial rebates available to first-time home buyers, resulting in a lower land transfer tax amount.

The Estoppel certificate fee is commonly known as a "condo status certificate". It is issued by the condominium corporation as part of the due diligence process when purchasing a condominium, and essentially gives you an overview of the status of the condo unit and the corporation to allow you to make an informed decision.

The amount of income a home buyer has is only one part of the mortgage affordability equation; your lender will also base the amount you’ll qualify for on the amount you have saved up for your down payment. Let’s say a buyer theoretically earns $70,000 and wishes to purchase a home, with the following assumptions:

• There is not a co-applicant, or their partner does not have a salary that can be factored into the equation.
  
• They have a down payment amount of $21,000 (30% of their gross annual  income, which is a popular benchmark used to determine how much income should contribute to housing costs).

Using our Mortgage Affordability Calculator, a home buyer the above criteria would qualify for a property with a maximum purchase price of $284,876.

Now, let’s assume there are two co-applicants earning a $70,000 salary, with a combined household income of $140,000 and $42,000 saved up for a down payment. In this scenario, these buyers would qualify for a maximum mortgage amount of $572,400.

In Canada, homeowners can access up to 65% of their home’s value as part of a Home Equity Line of Credit (HELOC). However, it’s important to note that your mortgage loan and HELOC balances combined do not exceed 80% of your home's appraised value. Borrowers can also access up to 80% of their home’s appraised value (minus any amount still owed on their mortgage) when taking out a second mortgage.